By Paula Escalada Medrano |
Washington (EFE).- While until a few days ago the question was whether the Federal Reserve (Fed) would raise rates by a quarter of a point or half a point, a figure that would vary depending on data such as inflation or unemployment, the Silicon Valley Bank’s fall has changed the landscape and could cause the regulator to hit the brakes.
This is the opinion of several experts consulted by EFE, who believe that what happened will make the Fed not be so aggressive and even consider pausing the increases until the markets stabilize.
According to University of California economics professor Eric Swanson, before the bank’s fall “the only debate was whether the Fed would raise the rate by 0.25 or 0.5%, and most people were expecting 0.” .5%”, but now “with the collapse of the SVB and the consequent stress on the regional banks, there is no way the Fed will raise half a point”.
Most likely, he explains, the Fed will continue to raise rates by 0.25%, although there is a possibility that “they may even hold off raising interest rates for a meeting or two just to let the financial system settle.” ”.
What he is convinced of is that on March 21 and 22, when the meeting of the Fed’s Open Market Committee is held, the crisis unleashed by the bank’s fall “will absolutely dominate the discussion.”
effects of the fall
The California-based SVB announced last Wednesday that it was seeking a capital increase to try to cope with financial difficulties, a situation that led many clients to withdraw their funds.
After that, regulators had to close the bank on Friday due to lack of liquidity, events that plunged the company’s stock price and wreaked havoc on the banking system in the United States and other countries.
The Treasury Department, the Fed and the Federal Deposit Insurance Corporation (FDIC) announced Sunday that customers will have access starting Monday to all money deposited with the SVB and promised a similar plan for Signature Bank, which it was also closed under the same parameters.
Despite the fact that the president of the United States, Joe Biden, has wanted to reassure the markets and assured this Monday that the country’s banking system “is safe”, the stock markets around the world have registered sharp falls due to what happened.
Expectations for the rise in interest rates
On March 22, the Fed will announce its decision. If rates go up, it will be the ninth consecutive rise in the last year in a series of increases carried out to contain inflation.
The last one, announced in February, was a quarter of a point and with it interest rates stood at a range of 4.5% and 4.75%, the highest figure since September 2007.
It was a smaller rise than the previous ones, something that seemed to indicate that the Fed was going to start to lift its foot of the accelerator. But in his semiannual appearance before the Senate and House banking committees last week, Fed Chairman Jerome Powell hinted at possible stronger hikes.
Even so, he pointed out, the decision had not been made and would depend on what data such as unemployment for February, published last Friday, or inflation, which will be released tomorrow, reflected. A banking crisis was not on the board.
A different panorama before the collapse
For the investment banking and securities group Goldman Sachs – who before the crisis forecast a rise of 25 basis points – “in light of the tension in the banking system” increases in rates are no longer expected, said the economist Jan Hatzius, in a note published Sunday.
An opinion that is also shared by the economist Ken Kuttner, a professor at Williams College: “Before the collapse, an increase of a quarter of a percentage point was certain, with some probability of half. Now, it is likely that they will leave the rate unchanged, although a quarter of a percentage point is not out of the question,” he added to EFE.
For his part, analyst Edward Moya of the Oanda firm agrees that “the collapse of Silicon Valley Bank is leading to the belief that financial instability will lead to less adjustment by the Federal Reserve.”
“Wall Street has gone from debating a 25 or 50 basis point hike to now thinking that the Fed might have ended the hikes or perhaps will announce one or two smaller hikes,” he told EFE.
Still, in his opinion, “financial regulators have already done enough to assuage concerns about financial instability,” so the Fed’s main driver “should continue to be reining in inflation” and it should “keep pace.” rate rise 25 points as long as inflation is not reduced significantly.